Deconstructing the "normal" language of pensions

But pension plan sponsors seem to have no qualms asking members to declare if they are normal. And provincial pension regulators aren’t shying away from the practice either.

Will you retire at your plan’s “normal retirement age?” And when you do retire, will you choose the “normal form” of monthly pension from the list of available options?

Normal is a loaded word. It automatically puts members on the defensive. It suggests that if you don’t retire at the normal age or take the normal form of pension, you better have a good and valid reason for doing so.

All pension plans have a normal retirement date. In fact, it’s a regulatory requirement. Most provinces also require that this date be shown on your annual pension statement—and that it be called just that—your normal retirement date. But what, exactly, does normal mean?

RBC’s third annual Retirement Myths and Realities Poll, a recent survey of retired baby boomers, found that four out of 10 retired Canadians either didn’t have a choice, or had little advance notice of their actual retirement date.

Is it the age most Canadians retire?Far from it. For most plans, the normal retirement age is 65. But, the average retirement age in Canada is now just over 60 for public servants and 62 for private employees.

Is it the age your employer expects you to retire?Probably not.

Is it the age your employer would prefer thatyou to retire?Almost certainly not. Many plan sponsors continue to use age 65 as the normal retirement age even though they want you to retire earlier or work longer.

Is it the age when you first qualify for an unreduced pension?Not necessarily. It’s not unusual for plans to have rules that allow you to retire with an unreduced pension well before age 65 (such as the rule of 85)—but still refer to 65 as the normal retirement age.

In reality, the normal retirement age is none of these things. Based on pension legislation in most provinces, it refers to the latest threshold at which you can qualify for an unreduced pension; the age itself is not specified. For example, under Ontario’s Pension Benefits Act, the normal retirement age can’t be later than the member’s 66 birthday, but that doesn’t mean it has to be 65.

So why—given the disappearance of mandatory retirement, a hike in the qualifying age for Old Age Security and the trend of boomers retiring later—does the notion of “normal” persist? Because actuaries need to establish a normal retirement age and normal form of pension as a basis for their plan valuations. Beyond that, the word normal has little meaning. In fact, from the individual member’s perspective, there is no normal retirement age and the normal form of pension is really just one option among many.

There’s no reason you have to adopt the actuaries’ terminology in your member communications. So, do your members a favour. Unless it’s required in a legal document, drop the term normal from your pension lexicon and let your retirement options speak for themselves.